Food company Pioneer Foods delivered “acceptable revenue and volume growth” for the financial year ended September 30, despite a difficult trading environment characterised by weak demand.

The company, which recorded a 6% year-on-year decrease adjusted headline earnings a share to 522c for the financial year, on Monday said it expected inflationary cost pressures, weak demand and muted consumer spending to continue.

Recovering the underlying cost inflation from market pricing remains key in this low volume growth environment, Pioneer said, emphasising that efforts to optimise costs and improve efficiencies remained a priority.

Pioneer’s revenue increased by 11% to just over R22-billion in the year under review, while volumes increased by only 2%.

The gross profit margin decreased from 28.8% to 27.6%, while its adjusted operating profit decreased by 13.1% to R1.3-billion. Consequently, the company pointed out that the operating profit margin regressed from 8% to 6.2%, mainly owing to the “disappointing performances” in maize and in its Wellingtons brand.

Operating profit for the group, excluding maize and Wellingtons, improved by 6.3%.

The share of profit from joint ventures and associates increased to R87-million, mainly as a result of the Heinz Foods South Africa business, which now forms part of the Groceries division.

Group earnings were negatively impacted on by items of a capital nature amounting to a net loss of R61-million.

Net cash profit from operating activities decreased by 9% to almost R1.9-billion, with the material grain inflation having led to an investment in working capital amounting to R527-million.

Stock levels year-on-year remained flat in terms of volume, while the inventory value increased by 11% related to inflation. The weaker operating performance, together with the increased investment in working capital, contributed to a decrease in net cash flow from operating activities of 43.7% to R1.1-billion.

Capital expenditure for the year amounted to R660-million. Major investments included the completion of the new Durban wheat mill and new packaging equipment for the beverages business.

The group's net interest-bearing debt amounted to R927-million at year-end, with a net debt to equity ratio of 10.4%. During the year, the strategic shareholder Phase II broad-based black economic empowerment equity transaction concluded and Pioneer Foods repurchased and cancelled over 11.5-million ordinary shares.

The outstanding Phase II third-party finance of R42-million was also repaid, Pioneer said.

DIVISIONAL PERFORMANCE

Under the company’s Essential Foods business, the wheat milling to baking value chain delivered a solid performance through strong bread volume growth after recent investments in baking capacity and distribution.

As mentioned earlier, the maize value chain was under pressure as a result of acute raw material cost increases and this, together with the lower quality of the crop, drove elevated White Star price premiums relative to price competition in the category.

Although White Star super maize meal volume share was retained, the impact of the raw material dynamics could not be fully recovered in the year under review, Pioneer lamented on Monday.

White Star Instant porridge, however, sustained strong volume growth at competitive pricing levels and strengthened its market leading position.

Lower-cost pasta imports continued to grow and posed significant risk to locally produced pasta.

The balance of the segment’s portfolio delivered a satisfactory performance, with Spekko rice sustaining sound volume and market share growth, Pioneer said.

The Groceries division recovered strongly in the latter part of the year owing to higher prices and firmer margins. While this improvement could not fully address the earnings regression in the first half, Pioneer said the resulting performance of the like-for-like business was “reasonable for the full year”.

The long life fruit juice business excelled and recorded volume growth of 7% on slightly higher prices, and delivered strong operating profit growth in the process. Cereals also showed strong underlying volume growth, with inflation around 3%.

The balance of the portfolio, beyond Weet-Bix, contributed positively, with corn flakes in particular showing a strong return to profitability.

The Wellingtons business was showing signs of improvement, albeit off a low base, according to Pioneer, which added that its condiments portfolio, in particular, was recording a good recovery.

Looking towards international waters, Pioneer said its export volumes into the rest of Africa continued to be dampened by volatile currencies and constrained consumer markets. Trade barriers also impeded progress as foreign governments adopted a protectionist approach towards imports in order to mitigate the consequences of the constrained macroeconomic backdrop.

The export of long life fruit juice and related groceries products into Zimbabwe in particular was hampered by the challenging and demanding economic conditions in that country, Pioneer lamented.

Dried fruit exports experienced a significant decline in global pricing owing to the US market's higher than anticipated stock levels from the previous season, which was further exacerbated by the better harvest of vine fruit in Turkey.

The UK business, meanwhile, continued to make inroads with growth in private label sales as well as the Lizi's brand exceeding expectations owing to innovation and increased numeric listings.

The Nigerian business delivered to expectation, with the sausage roll category having posted double-digit volume growth. The new Nigerian bread plant was commissioned during November and the focus is on delivering against this investment case, Pioneer said.

Further, the company said that it anticipates the Pepsico offer to be finalised early next year.